Half Yearly Report

RNS Number : 3861N
Sound Oil PLC
28 September 2012
 



28 September 2012

Sound Oil plc

("Sound Oil" or "the Company")

 

Interim results for the six months ended 30 June 2012

 

Sound Oil (AIM:SOU), the upstream oil and gas company with assets in Italy and Indonesia, announces its unaudited interim results for the six months ended 30 June 2012.

 

Highlights

 

·          Following the submission of an application to drill Nervesa (Italy), significant progress towards drilling in December has been made, including long lead items delivered, land secured, rig identified and service contracts awarded

 

·          Application to drill the Strombone (Italy) discovery submitted

 

·          Drilling of the development wells at Kerendan (Indonesia) is progressing well

 

·             Cash at 30 June 2012 stood at £5.1 million with no debt

 

·          £1.0 million raised (before costs) post period-end in first two tranches of placement (at monthly VWAPs of 0.5615 pence and 0.4417 pence per share)

 

 

 

Gerry Orbell, Sound Oil's Chairman and Chief Executive, commented:

 

"The Company is part way through the busiest period in its existence.  In the current half year we shall see the drilling of a number of development, appraisal and exploratory wells."

 

 

For further information please contact:

 

Sound Oil

Gerry Orbell, Chairman & Chief Executive

James Parsons, Chief Financial Officer

 

Tel: +44(0)1372 365745

Smith & Williamson - Nominated Adviser

Azhic Basirov

David Jones

 

Tel: +44 (0)20 7131 4000

Westhouse Securities - Broker

Antonio Bossi

Jonathan Haines

 

Tel: +44 (0)20 7601 6100

Buchanan

Tim Thompson

Ben Romney

Helen Chan

 

Tel: +44 (0)20 7466 5000

 

 

 

Chairman's Statement

 

In Italy during the first half of 2012 we submitted applications to drill appraisal wells on the Nervesa and Strombone discoveries and to produce at the Rapagnano and Casa Tiberi gas fields. We anticipate that these applications will be approved shortly. Preparations for the Nervesa well are already well advanced and we are planning that this well will be drilled late in 2012. At Rapagnano we have formed an alliance with the Italian engineering group CSTI which will fund approximately 50% of the development costs and undertake the facilities engineering works. We are looking to build on this relationship in other areas of our portfolio.

 

We have been drilling at both of our Indonesian Production Sharing Contracts (PSC's) after a gap of several years. At the Citarum PSC where we have a 20% position, the Operator, Pan Orient, moved the rig to the Jatayu wellsite in March after abandoning the earlier Cataka - 1 well above the reservoir target due to continuous drilling problems. The Jatayu - 1 well encountered gas bearing and overpressured sandstones below 5,700 feet which ultimately required using a high density mud weight for safe drilling. When the well was deepened to below 6,000 feet, mud was lost into the formation. This indicates either that naturally occurring porous rocks had then been encountered, or that mechanical fracturing of the formation had occurred as a result of previous exposure to high-density drilling mud. These conditions caused drilling problems resulting in three sidetracks. Finally the Operator ran a 4 1/2" liner to 6,636 feet and the well was suspended in September pending the arrival of a slim-hole drilling rig on site. Pan Orient intends to use this rig to drill to the target horizon at approximately 7,500 feet. Meanwhile Pan Orient will move the conventional rig to the Geulis wellsite.

 

Elsewhere in Indonesia, at the Bangkanai PSC, the Kerendan Gas Field development drilling campaign commenced in August with the first of four deviated production wells which Salamander, the Operator, intends to drill from a common wellsite. Under the terms of the ratified Gas Sales and Supply Agreement, the Indonesian electricity utility PLN is required to purchase the supply of Kerendan gas starting in the second half of 2013. Following the Kerendan drilling, the Operator will move the rig to drill the deep West Kerendan - 1 well. This will be the first of two high impact exploratory wells at the PSC. Sound Oil has a 5% carried interest in this permit whereby Salamander bears all the Company's share of the cost of drilling the Kerendan production wells, the cost of all development and production facilities and the cost of two exploratory wells, up to the point when gas is first produced.

 

Shortly after the end of the reporting period the Company announced a private placement of shares, thereby further securing the Company's funding position despite continued cost overruns in drilling the Citarum well. The placement involved issuing 774,341,464 new ordinary shares in exchange for 7,143,300 subscription notes which are redeemed equally over each of the next seven months at an average monthly share price.

 

The seven month period is designed to cover the period when first revenue from Rapagnano is expected and the material Nervesa appraisal well is drilled. An open offer for shareholders to subscribe to new shares was also announced, scheduled for the end of the placement period.

 

At the end of June, the Company's cash position was £5.1 million with no debt. The loss after tax for the first six months of 2012 was £2.1 million, which includes £1.4 million in administrative expenses and a £0.6 million foreign currency translation loss.

 

The Company is part way through the busiest period in its existence and in the next half year we shall see the drilling of development, appraisal and exploratory wells on our properties. The Company conducted a review of its operations in the middle of the year and is taking steps to streamline the business involving both capital costs and business overheads.

 

Finally I would like to thank my colleagues within Sound Oil and on the Board for their contributions on behalf of the Company.

 

Gerry Orbell

Chairman

27 September 2012

 

 

Condensed Interim Consolidated Income Statement

for the six months ended 30 June 2012

 



Six months

Six months

Year ended



ended 30 June

ended 30 June

31 December



2012

2011

2011



Unaudited

Unaudited

Audited


Notes

£'000

£'000

£'000






Exploration costs


(49)

(580)

(2,405)

Gross loss


(49)

(580)

(2,405)

Administrative expenses


(1,398)

(1,345)

(2,948)

Group operating loss from continuing operations


(1,447)

(1,925)

(5,353)

Finance revenue


8

21

Foreign exchange gain/(loss)


(112)

(604)

(439)

Expense incurred in acquiring subsidiaries


-

(522)

(516)

Loss for the period before and after taxation


(1,551)

(3,030)

(6,264)

Other comprehensive income/(loss):





Foreign currency translation income/(loss)


(579)

(777)

27

Total comprehensive loss for the period


(2,130)

(3,807)

(6,237)

Loss for the period attributable to:





Owners of the Company


(1,551)

(3,025)

(6,259)

Non-controlling interests


-

(5)

(5)



(1,551)

(3,030)

(6,264)

Total comprehensive loss attributable to:





Owners of the Company


(2,130)

(3,802)

(6,232)

Non-controlling interests


-

(5)

(5)



(2,130)

(3,807)

(6,237)

Loss per share basic and diluted for the period attributable to the equity holders of the parent (pence)

4

(0.08)

(0.19)

(0.39)

 

 

Condensed Interim Consolidated Balance Sheet

at 30 June 2012

 


Notes

30 June 2012

Unaudited

£'000

30 June 2011

Unaudited

£'000

31 December

 2011

Audited

£'000

Non-current assets





Property, plant and equipment


1,125

80

1,278

Intangible assets


3,508

2,131

3,577

Exploration and evaluation assets

6

25,649

15,934

22,725

Other debtors


742

662

668



31,024

18,807

28,248

Current assets





Other debtors


1,436

341

1,388

Prepayments


24

56

119

Cash and short term deposits


5,149

11,429

6,286



6,609

11,826

Total assets


37,633

30,633

36,041

Current liabilities





Trade and other payables


2,039

1,107

2,233



2,039

1,107

2,233

Non-current liabilities





Deferred tax liabilities


3,507

2,131

3,576

Provisions


356

108



3,863

2,239

3,942

Total liabilities


5,902

3,346

6,175

Net assets


31,731

27,287

29,866

Capital and reserves





Equity share capital


58,676

49,825

54,704

Non controlling interests


-

-

Foreign currency reserve


3,189

2,964

3,768

Accumulated deficit


(30,134)

(25,546)

(28,606)

Total equity


31,731

27,287

29,866

 

 

Condensed Interim Consolidated Cash Flow Statement

for the six months ended 30 June 2012

 


Six months

Six months

Year ended


ended 30 June

ended 30 June

31 December


2012

2011

2011


Unaudited

Unaudited

Audited


£'000

£'000

£'000

Cash flow from operating activities




Cash flow from operations

(1,715)

(1,109)

(3,009)

Interest received

8

21

44

Net cash flow from operating activities

(1,707)

(1,088)

(2,965)

Cash flow from investing activities




Capital expenditure and disposals

(10)

(69)

(31)

Exploration expenditure

(3,344)

(897)

(3,809)

Expense in acquiring subsidiaries

-

(522)

(366)

Acquisition of subsidiaries

-

(1,436)

(4,712)

Payment in escrow - acquisitions of subsidiaries

-

-

2,413

Net cash flow from investing activities

(3,354)

(2,924)

(6,505)

Proceeds from equity issue

3,972

10,791

12,108

Net cash flow from financing activities

3,972

10,791

12,108

Net increase/(decrease) in cash and cash equivalents

(1,089)

6,779

2,638

Net foreign exchange difference

(48)

166

(836)

Cash and cash equivalents at the beginning of the period

6,286

4,484

4,484

Cash and cash equivalents at the end of the period

5,149

11,429

6,286

 

 

Notes to cash flow


Six months

Six months

Year ended


ended 30 June

ended 30 June

31 December


2012

2011

2011


Unaudited

Unaudited

Audited


£'000

£'000

£'000

Cash flow from operations reconciliation




Loss before tax

(1,551)

(3,030)

(6,264)

Expense in acquiring subsidiaries

-

522

516

Payroll bonuses settled in shares

-

-

98

Share options granted and taken up immediately

-

-

36

Finance revenue

(8)

(21)

(44)

Exploration expenditure written off

49

(9)

1,236

Cash taken over on acquisition of subsidiaries

-

-

170

Increase/(decrease) in accruals and short term creditors

(152)

610

1,668

Depreciation

5

6

11

Share based payments charge

23

12

260

Increase in long term provisions

(1)

-

261

Decrease/(increase) in long term debtors

(81)

(32)

(12)

Decrease/(increase) in short term debtors

1

833

(945)

Cash flow from operations

(1,715)

(1,109)

(3,009)

 

 

Notes to the Condensed Interim Consolidated Financial Statements

 

1.  Basis of preparation

 

The condensed interim consolidated financial statements were approved for issue by the directors on 27 September 2012. They do not represent statutory accounts within the meaning of section 435 of the Companies Act 2006. The comparative financial information is based on the statutory accounts for the year ended 31 December 2011. Those accounts, upon which the auditors issued an unqualified opinion, have been delivered to the Registrar of Companies and did not contain statements under section 498(2) or (3) of the Companies Act of 2006.

 

The condensed interim financial information is unaudited and has been prepared on the basis of the accounting policies set out in the Group's 2011 statutory accounts and in accordance with IAS 34 Interim Financial Reporting.

 

The seasonality or cyclicality of operations does not impact on the interim financial statements.

 

2.  Share-based payments

 

The Group has a Long Term Incentive Plan under which share options have been granted to the executive team.

 

No share options were awarded to Directors during the period however a total of 18,550,000 share options were awarded to the executive team.

 

A total expense of £23,000 (2011 full year of £260,000) has been recognised in the consolidated income statement from equity settled share options. Consistent with previous years, this amount is the fair value of all the equity settled options in existence at the end of the period, estimated at the date of the grant using a Black Scholes model.

 

3.  Related party transactions

 

There were no sales or purchases to or from related parties, no guarantees provided or received for any related party receivables or payables and no other transactions with related parties, directors' loans and other directors' interests.

 

4.  Loss per share

 

The calculation of basic loss per ordinary share is based on the loss after tax and on the weighted average number of ordinary shares in issue during the period. Basic loss per share is calculated as follows:

 


Loss after Tax

Weighted average number of shares

Loss per share


June

June

December

June

June

December

June

June

December


2012

2011

2011

2012

2011

2011

2012

2011

2011


£'000

£'000

£'000

million

million

million

pence

pence

pence

Basic

(1,551)

(3,025)

(6,259)

2,041

1,616

1,600

(0.08)

(0.19)

(0.39)

Diluted loss per share has not been disclosed as inclusion of unexercised options would be anti-dilutive.

 

5.  Segment information

 

The Group's categorises its operations into two business segments based on exploration and appraisal and development and production.

 

The Group's exploration and appraisal activities are carried out in two geographic areas being:

 

In Indonesia under a Production Sharing Contract ("PSC"), Citarum, and in Italy under various licences and permits. The development and production activities are based in Indonesia under the Bangkanai PSC.

 

The Group's reportable segments are based on internal reports about components of the Group which are regularly reviewed and used by the board of directors, being the Chief Operating Decision Maker ("CODM"), for strategic decision making and resource allocation, in order to allocate resources to the segment and to assess its performance.

 

To date the Group has no development activity which has resulted in production and no turnover and have therefore not provided information on revenue, products or services.

 

Details regarding each of the operations of each reportable segment is included in the following tables:

 

The segment results for the period ended 30 June 2012 are as follows:

 



Development &

Exploration &



Corporate

production

appraisal

Total


£'000

£'000

£'000

£'000

Sales and other operating revenues

-

-

-

-

Other income/(loss)

-

-

-

-

Exploration costs

-

-

(49)

(49)

Impairment of exploration and





evaluation assets

-

-

-

-

Administration expenses

(1,398)

-

-

(1,398)

Operating loss segment result

(1,398)

-

(49)

(1,447)

Interest receivable

8

-

-

8

Finance costs

(112)

-

-

(112)

Cost of acquiring subsidiaries

-

-

-

-

Loss on Farmout disposals

-

-

-

-

Loss for the period before taxation

(1,502)

-

(49)

(1,551)

 

The segments assets and liabilities at 30 June 2012 are as follows:

 



Development &

Exploration &



Corporate

production

appraisal

Total


£'000

£'000

£'000

£'000

Capital expenditure

37

1,088

29,157

30,282

Other assets

7,351

-

-

7,351

Total liabilities

(5,902)

-

-

(5,902)

 

The segment results for the period ended 30 June 2011 are as follows:

 


Corporate

£'000

Development & production

£'000

Exploration &

appraisal

£'000

Total

£'000

Sales and other operating revenues

-

-

-

-

Other income/(loss)

-

-

-

-

Exploration costs

(589)

-

9

(580)

Impairment of exploration and evaluation assets -


-

-

-

Administration expenses

(1,345)

-

-

(1,345)

Operating loss segment result

(1,934)

-

9

(1,925)

Interest receivable

21

-

-

21

Finance costs

(604)

-

-

(604)

Cost of acquiring subsidiaries

(522)

-

-

(522)

Loss on Farmout disposals

-

-

-

-

Loss for the period before taxation

(3,039)

-

9

(3,030)

 

The segments assets and liabilities at 30 June 2011 are as follows:

 


Development &

Exploration &


Corporate

production

appraisal

Total


£'000

£'000

£'000

£'000

Capital expenditure

80

-

18,065

18,145

Other assets

12,488

-

-

12,488

Total liabilities

(3,346)

-

-

(3,346)

 

The segment results for the period ended 31 December 2011 are as follows:

 

Corporate

£'000

Development & production

£'000

Exploration &

appraisal

£'000

Total

£'000

Sales and other operating revenues

-

-

-

-

Other income/(loss)

-

-

-

-

Exploration costs

(936)

-

(233)

(1,169)

Impairment of exploration and evaluation assets

-

-

(1,236)

(1,236)

Administration expenses

(2,948)

-

-

(2,948)

Operating loss segment result

(3,884)

-

(1,469)

(5,353)

Interest receivable

44

-

-

44

Finance costs

(439)

-

-

(439)

Cost of acquiring subsidiaries

(516)

-

-

(516)

Loss on Farmout disposals

-

-

-

-

Loss for the period before taxation

(4,795)

-

(1,469)

(6,264)

 

The segments assets and liabilities at 31 December 2011 are as follows

 



Development &

Exploration &



Corporate

production

appraisal

Total


£'000

£'000

£'000

£'000

Capital expenditure

32

1,246

26,302

27,580

Other assets

8,461

-

-

8,461

Total liabilities

(6,175)

-

-

(6,175)

 

6.  Exploration and evaluation assets

 


30 June 2012

Unaudited

£'000

30 June 2011

Unaudited

£'000

31 December 2011

Audited

£'000

Costs




At start of period

26,856

12,982

12,982

Acquisitions

-

5,931

11,361

Additions

3,381

897

3,809

Transfers

-

-

(1,246)

Exchange adjustments

(585)

(848)

(50)

At end of period

29,652

18,962

26,856

Impairment




At start of period

4,131

3,028

3,028

Additions

49

-

1,101

Exchange adjustments

(177)

-

2

At end of period

4,003

3,028

4,131

Net book amount at end of period

25,649

15,934

22,725

 

 

7.  Share Issues

 

On 6 February 2012, the Company placed 262,587,803 new ordinary shares at 1.5233p per share, raising £4 million and issued 157,552,682 three year warrants.

 

8.  Post balance sheet events

 

On 16 July 2012, the Company placed 774 million new shares in a placement through Astin Capital Management in consideration for £7.1 million redeemable subscription notes and the cancellation of 217 million existing warrants.

 

The redeemable notes are redeemed in equal amounts in each of the next seven months at the average volume weighted price for each month.

 


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